With its $3.2 billion purchase of Nest Labs, Google's making a huge bet on the consumer Internet of Things.

Internet connections will be built in to a massive quantity of new products, from air conditioners to light bulbs and security alarms. These will become "smart devices," and will all be controlled through apps and websites, and feed data into the cloud.

With Nest, which makes smart smoke detectors and thermostats, Google has positioned itself as an early leader in this space, sometimes also known as the "Connected Life" or "Connected Home" markets. In a new report from BI Intelligence, we examine the forces and numbers driving growth in the consumer Internet of Things or IoT, including the mind-boggling numbers for total market size. It's difficult to overestimate the importance of the Internet of Things because it will come to encompass all kinds of products we don't normally think of as high-tech, such as UV-filtering window shades and door locks. We also look at the enterprise market for the Internet of Things.

Here are some of our top findings:

Defining the Internet of Things:The Internet of Things marks a major watershed in the global consumer economy. It’s helpful to think about IoT devices as a new device category layer that exists as the connective tissue between the formerly static non-connected world, and the world of PCs, tablets, and smartphones. For example, a connected washer and dryer unit can report energy usage and cycle settings to a smartphone app.

It's a huge opportunity: Machina defines “Connected Life Market Revenue” as the sum of all of the revenue accruing from the sale of connected devices and all related services. They see revenue ballooning to $2.5 trillion by 2020.

But startups are making a grab for this market too: SmartThings has built its entire business model around easily deployable sensors, monitors, and apps that allow consumers to run everything in their home through their smartphone. It raised a $3 million seed round late last year. We also expect companies such as Apple, Google, and others to get more involved.

The Internet of Things seems esoteric, but it's relatively simple: IoT devices will contain three ingredients: An Internet connection, either in the device itself or a base station; a sensor, to collect incoming data; and a processor, because just like any computing device, an IoT gadget will have a chip that parses information.